We can judge whether KKR Real Estate Finance Trust Inc. (NYSE:KREF) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
KKR Real Estate Finance Trust Inc. (NYSE:KREF) investors should be aware of an increase in enthusiasm from smart money lately. KREF was in 9 hedge funds’ portfolios at the end of the first quarter of 2019. There were 8 hedge funds in our database with KREF holdings at the end of the previous quarter. Our calculations also showed that kref isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to take a peek at the new hedge fund action surrounding KKR Real Estate Finance Trust Inc. (NYSE:KREF).
How have hedgies been trading KKR Real Estate Finance Trust Inc. (NYSE:KREF)?
At the end of the first quarter, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KREF over the last 15 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ken Heebner’s Capital Growth Management has the biggest position in KKR Real Estate Finance Trust Inc. (NYSE:KREF), worth close to $17.2 million, comprising 1.1% of its total 13F portfolio. The second most bullish fund manager is Elliott Management, led by Paul Singer, holding a $10.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors with similar optimism include Jim Simons’s Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors and Israel Englander’s Millennium Management.
Now, specific money managers have been driving this bullishness. Capital Growth Management, managed by Ken Heebner, initiated the most valuable position in KKR Real Estate Finance Trust Inc. (NYSE:KREF). Capital Growth Management had $17.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $0.6 million investment in the stock during the quarter. The only other fund with a brand new KREF position is David Harding’s Winton Capital Management.
Let’s also examine hedge fund activity in other stocks similar to KKR Real Estate Finance Trust Inc. (NYSE:KREF). We will take a look at Accelerate Diagnostics Inc (NASDAQ:AXDX), Matthews International Corp (NASDAQ:MATW), Helix Energy Solutions Group Inc. (NYSE:HLX), and BMC Stock Holdings, Inc. (NASDAQ:BMCH). This group of stocks’ market valuations are closest to KREF’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AXDX | 11 | 66192 | 6 |
| MATW | 12 | 43871 | 0 |
| HLX | 16 | 66120 | -2 |
| BMCH | 29 | 209953 | 5 |
| Average | 17 | 96534 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $43 million in KREF’s case. BMC Stock Holdings, Inc. (NASDAQ:BMCH) is the most popular stock in this table. On the other hand Accelerate Diagnostics Inc (NASDAQ:AXDX) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks KKR Real Estate Finance Trust Inc. (NYSE:KREF) is even less popular than AXDX. Hedge funds dodged a bullet by taking a bearish stance towards KREF. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately KREF wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); KREF investors were disappointed as the stock returned 2.1% during the same time frame and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in the second quarter.
Disclosure: None. This article was originally published at Insider Monkey.
